Trade surplus: The trade surplus increased from a revised $2,342 million in August (previously $1,604 million) to $3,017 million (consensus: +$1,700m) in September. It was the largest surplus in 19 months and the 9th successive surplus this year.

Trade with China: Australia's annual exports to China rose from US$108.29 billion in August to US$109.42 billion in September – a new record high. Australia's annual imports from China rose from US$69.88 billion to US$71.20 billion – also a record high.

Export & import prices: Import prices rose by 1.9 per cent in the September quarter and were up by 9.8 per cent on a year ago – the fastest annual growth rate in 9½ years. Export prices rose by 3.7 per cent in the quarter and were up by 14.0 per cent over the year – the fastest annual growth rate in 12 months.

Terms of trade: Based on today’s data we expect that the ratio of export prices to import prices (terms of trade) rose by around 1.0 per cent in the September quarter. Net exports are forecast to contribute 0.5 percentage points to economic growth.

China’s factories are managing to barely keep their heads above water as the trade war with the US escalates. Both the official and private sector manufacturing gauges released over the past couple of days are a smidgen above 50, the level which differentiates expansion from contraction.

The good news from an Aussie perspective is that we are continuing to weather the storm. In fact, Australia’s external trade balance is improving, having recorded the largest surplus in 19 months and a positive trade balance in every single month this year. Australia continues to set records with its top trading partner, China. Both annual exports and imports climbed to new apexes in September.

In terms of implications for inflation, import prices are certainly worth watching – especially across the business sector. The annual growth of import prices was the fastest in 9½ years. The key question is whether Australian businesses are confident enough to pass on the higher import cost to consumer and business products.

While the lift in import prices was dominated by higher oil prices, seven of the ten price groupings reported higher prices in the quarter. And export prices lifted too, up by 14 per cent over the year to September – the strongest annual growth rate in 12 months. Rising coal and natural gas prices, boosted overall prices, with eight out of ten price groupings up during the quarter.

What do the figures show?

International trade

The trade surplus increased from a revised $2,342 million in August (previously $1,604 million) to $3,017 million (consensus: +$1,700m) in September. It was the largest surplus in 19 months and the 9th successive surplus this year. The rolling annual surplus rose from $11.23 billion to $13.74 billion – the highest level in 10 months.

Exports of goods and services rose by 0.8 per cent (goods also rose by 0.6 per cent).

Imports of goods and services fell by 1.1 per cent (goods fell by 1.5 per cent).

Exports were up by 15.9 per cent on a year ago (strongest growth rate in 12 months), while imports were up 9.2 per cent.

Rural exports rose by 0.8 per cent. Rural exports rose due to a $45m lift in wool and sheepskins and $11m increase in cereal grains and preparations exports. But meat exports fell by $32m.

Non-rural goods rose by 3.0 per cent. Gold exports fell by 26.0 per cent after rising by 12.7 per cent in August. Non-rural exports were driven higher by a $551 million increase in metal ores and minerals; $270m lift in other mineral fuels and $50m increase in transport equipment. But coal, coke and briquettes fell by $141m.

Within imports, consumer imports rose by 0.6 per cent; capital goods imports fell by 9.1 per cent and intermediate goods imports rose by 1.9 per cent.

Consumption goods imports were up by 6.0 per cent on a year ago, while capital goods imports were down by 2.4 per cent and intermediate goods imports were up by 21.3 per cent.

The net services deficit contracted from $94 million in August to just $9 million in September.

Australia's annual exports to China rose from US$108.29 billion in August to US$109.42 billion in September – a new record high. Exports to China are up 9.0 per cent on a year

ago. Exports to China account for 33.4 per cent of Australia's total exports, just off record highs.

Australia's annual imports from China rose from US$69.88 billion to US$71.20 billion – a record high. Annual imports were up by 15.7 per cent on a year ago. Imports from China

accounted for 24.08 per cent of Australia's total imports – a record high.

Australia's rolling annual trade deficit with the US fell from $18.46 billion to $18.20 billion. Imports from the US account for 10.27 per cent of total imports in September, above the record low of 9.88 per cent in June.

Export & import prices

The Bureau of Statistics (ABS) reported that import prices rose by 1.9 per cent in the September quarter after rising by 3.2 per cent in the June quarter. Import prices increased by 9.8 per cent over the year – the fastest growth rate in 9½ years. Overall, import prices were driven by higher crude oil prices.

The ABS said: “The main contributor to the rise is Petroleum, petroleum products and related materials (+5.1 per cent), reflecting tight worldwide supply due to global production restrictions and capacity constraints.

Manufactures of metals, n.e.s., rose 8.3 per cent, due to rises in prices of household products of iron and steel.

The depreciation of the Australian dollar against the US dollar had an upward effect on prices, including for Office machines and automatic data-processing machines (+3.3 per cent), Miscellaneous manufactured articles, n.e.s. (+2.5 per cent) and Articles of apparel and clothing accessories (+3.1 per cent).

These rises were partially offset by falls in prices for Gold, non-monetary (-3.8 per cent) and Metalliferous ores and metal scrap (-15.6 per cent).

Through the year to the September quarter 2018, the Import Price Index rose 9.8 per cent. The main contributor to the rise is Petroleum, petroleum products and related materials (+48.3 per cent).”

Seven of the ten broad import categories recorded price increases in the September quarter.

Export prices rose by 3.7 per cent in the September quarter after a 1.9 per cent rise in the June quarter. Export prices were up by 14.0 per cent over the year – the strongest annual growth rate in 12 months.

The ABS said: “Prices received for many of Australia's mineral fuel commodities rose in the September quarter 2018. Gas, natural and manufactured, rose 12.9 per cent, in response to strong demand for LNG in northern Asia and supply constraints. Export contract prices for LNG are also influenced by the international crude oil price with a two to four month lag.

Offsetting these rises were falls in prices for Gold, non-monetary (-3.2 per cent) and Non-ferrous metals (-2.2 per cent).

Through the year to the September quarter 2018, the Export Price Index rose 14.0 per cent. The main contributors to the rise are Gas, natural and manufactured (+39.8 per cent) and Coal, coke and briquettes (+21.9 per cent).”

Eight of the ten broad export categories recorded price increases in the September quarter.

The ratio of export prices to import prices (a proxy for the terms of trade) rose by around 1.0 per cent in the September quarter.

What is the importance of the economic data?

The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.

The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist is gauging inflationary pressures in the economy.

What are the implications for interest rates and investors?

Australia’s exporters are key beneficiaries of a weaker Aussie dollar, thanks mainly to increasing interest rate differentials with the US. And rising iron ore, LNG and coal prices are a boon to Australia’s fiscal position.

Despite concerns over slowing Chinese economic growth, demand for our natural resources and services remains buoyant. Australia’s miners are increasingly busy and workers are being encouraged to return to work on big-ticket projects in the Pilbara.

We estimate Australia’s terms of trade to have lifted by around 1 per cent in the September quarter.